The outlook for California’s budget is, of course, bleak. I say “of course” because most states are in serious trouble: Federal support makes up close to a third of most state budgets, sometimes more—and as the Trump Administration has set about destroying state funding to give tax cuts to billionaires, the situation has left governors and legislators looking for ways to cut programs.
We keep hearing terms like “tough budget choices” and “challenges.” That’s politics-speak for austerity, for more devastation of the remaining program that help the poor and working class.
But a new report from the Action Center on Race and the Economy offers another alternative: State governments have plenty of ways to raise new revenue from taxes on the rich and on big corporations. There’s enough money out there to come close to replacing what Trump has taken away.
State officials, the report says, need to stop just blaming Washington and start demanding that the very rich in their own states “pay us what you owe us.”
From the report:
We are in the midst of what many are deeming the largest transfer of wealth in U.S. history from Black, brown and poor communities to the ultra-wealthy. The Institute on Taxation and Economic Policy (ITEP) estimates that Trump’s 2025 federal tax cuts will result in the richest 1% receiving $117 billion in tax cuts in 2026 alone. The impacts of this transfer will be felt by children in under-resourced classrooms, families who will suffer avoidable deaths due to hospital closures or lack of healthcare, students who will be burdened with more debt to pursue education, and immigrants ripped off the streets by militarized forces whose budgets have ballooned at the expense of the programs poor people need to thrive.
Federal giveaways to the ultrawealthy create massive budget deficits for our state governments, as well as local governments who depend on federal and state dollars. Across the country, many states are mimicking the actions of the federal government by reducing taxes on the ultra-wealthy and their corporations or enacting austerity measures to further cut the vital public services residents depend on. These actions are justified by the myth that there simply isn’t enough money to fund the programs our communities depend on the most; meanwhile, billionaires and megacorporations continue pocketing record-breaking profits.
We must resist austerity at all levels of government and make it plain that the wealth to fully fund our communities exists. The only path forward is to expose the CEOs and corporations in our states that are creating the crisis and champion common-sense revenue solutions that will make them pay. We can resist the billionaire-first agenda. Our state budgets can be a powerful tool to make up for disinvestment at the federal level. The only way to combat the federal tax cuts for the ultra-wealthy is by championing strong progressive revenue solutions that recuperate those funds for our communities at the state level.
The report offers some fascinating ideas, among them a digital ad tax. The giant tech companies make most of their money from selling ads—and much of that is never taxed:
Together, Big Tech has created a booming digital advertising empire that’s fast approaching $1.1 trillion.49 This empire is built on extracting our personal information and surveilling our every activity and location without paying us a dime for access to our personal information.
The vast majority of digital advertising money is collected by a tiny handful of companies—Google, Meta, Amazon, TikTok and Microsoft. Google alone accounts for a quarter of the entire digital ad marketplace.
Taxing those ads would bring in billions to fund social services:
Because the tax is based on where ads are viewed, Big Tech companies would have to stop advertising in the state altogether to avoid being taxed. This is a smart and legal progressive revenue raiser that will capture funds from Big Tech’s booming advertising empire.
The report also calls for state wealth taxes, which fits with the theories of French economist Thomas Piketty. It also reflects what the Patriotic Millionaires argue: That the very rich pay almost no taxes on their real income. From the report:
The wealthier you are, the larger percentage of your wealth comes from unrealized capital gains. However, this wealth remains largely untaxed as wealthy individuals often hold onto their investments for many years and pass it on.
The same goes for capital gains and the “carried interest” loophole:
States like New York, California, Illinois, Texas, Massachusetts, and Connecticut with large concentrations of private equity, hedge funds, and venture capital firms, have the most to gain from closing the loophole.
The report also dives into regressive spending (a big chunk of California’s deficit comes from overspending on prisons.)
And here’s an interesting concept I didn’t know about:
Raising progressive revenue is the easiest way to reduce Wall Street’s power in our state and local governments, because if we have the revenue we need, we do not need to rely on borrowing from these Wall Street entities. Another avenue for reducing their power is called fiscal mutualism. Fiscal mutualism is an economic concept where pension funds invest in municipal bonds issued by local governments. This helps lower borrowing costs for those governments, making it easier for them to finance public projects without needing to pay exorbitant interest rates and fees to Wall Street. By having a local pension fund invest in municipal bonds, a city can secure lower interest rates on its debt and the pension fund earns a steady return on its investment. Fiscal mutualism defined the first half of the twentieth century, with virtually every state restricting pension investments to federal, state, and local bonds. This closed-loop created a symbiotic relationship where pension trustees were invested in the stability and growth of their city and schools by purchasing bonds, and in return the city or school district made interest payments that directly benefited the retirement of its workforce. Tax-exempt municipal bonds generally offer lower yields than corporate investments, but wealthy investors accept the lower yield in order to receive the tax-exemption benefit. Fiscal mutualism eroded when legislative changes lifted regulations for pension investments, leading pension trustees to abandon fiscal mutualism in favor of higher-yield corporate investments.
The report challenges states like California, where the governor and most of the Legislature talks about the horrors of Trump, to stop complaining and bring some of that money back home.
Gav?
